Page 127 - CW E-Magazine (22-7-2025)

Point of View

Chemical hubs, streamlined regulations, and innovation

key to scale Indian chemical industry

India’s chemical industry is the sixth largest in the world and the third in Asia. While this seems prima facie impressive, the fact is
that the industry punches far below its weight given its population, with a piffling 3-3.5% share of global chemical consumption. Just as
importantly, India’s chemical industry accounts for a small share of global trade.

Estimates of the size of the industry here vary, depending on what’s included and what’s not, but a figure of around $220-bn in 2023 is
not far off the mark. Forecasts of where the industry can go from here come with many caveats, but some have put the number between
$400-bn and $450-bn in 2030 and a $1-trillion by 2040. Just to give a comparison, China’s chemical industry – the world’s largest – is
presently valued in excess of where India hopes to be in 15 years!

India’s chemical industry is poorly integrated in global value chains, and – with few exceptions – what it makes is largely for domestic
consumption. Export, for most companies, is an opportunistic play, not surprising considering the challenging nature of the business. Of
course, there are value chains in which India is a leading player globally – some active pharmaceutical ingredients, fine chemicals, aroma
chemicals, as well as a handful of bulk chemicals for which there is little ability to add value domestically, come immediately to mind.
While some sectors of the industry have a trade surplus, the overall chemical industry runs a trade deficit of~$31-bn which has been
growing in recent years. While new projects have increased supply, demand is racing ahead in most instances.

Filling value chains
The ability to scale to meet rising domestic demand, diversify the range of products made here, and to better integrate into global value
chains is hindered by several factors, many of which need governmental intervention. These include serious infrastructure limitations,
particularly shared facilities such as for logistics, utilities supply, waste treatment & disposal in Chemical Parks; as well as insufficient
availability of feedstock in the right place at the right price. Furthermore, the regulatory rigmarole project promoters are expected to
overcome are daunting and take time (and money) to resolve.

Where feedstocks are available there has been a tendency to divert it to just a few end-uses, leaving many value chains unaddressed.
The case of propylene – the second most important olefin (after ethylene) exemplifies this. Till about three years ago, more than 90% of
propylene produced in the country was converted to polypropylene (PP). This was for two reasons. The resource was available only with
cracker operators who preferred to valorise it themselves for making the polymer with which they were familiar; and the strong demand
pull for from the market. This has changed somewhat in recent years. Today, India has reasonable capacities (though still behind domestic
demand) for derivatives like phenol/acetone, oxo-alcohols, acrylic acid & its esters, and the share of propylene consumed to make PP has
fallen to about 80% - still higher than the global average!
Financial support
In a recent report, ‘Chemical Industry: Powering India’s participation in Global Value Chains’, Niti Aayog, the government’s planning
agency, has called for policy interventions and fiscal support to the chemical industry. This is aimed at enabling investments in bulk chemical
value chains where sizeable gaps exist between domestic supply and demand; export market expansion in segments such as agrochemicals,
dyes, pigments, etc.; and in ‘sunrise’sectors including battery and electronic chemicals, where India’s presence is now negligible.

The think-tank has made a case for provision of Viability Gap Funding (VGF) to catalyse investments in downstream higher-value
chemical manufacturing; as well as an innovation push to plug technology-gaps in existing and emerging chemical sectors. It has also
called for the development of world-class chemicals hubs with advanced infrastructure and seamless port connectivity; as well as policy
reforms focussed on streamlining approvals.

The call for an ‘opex subsidy’ to spur incremental production of chemicals based on their import bill, is akin to repeated pleas of the chemical
industry for a Production Linked Incentive (PLI) scheme for chemicals, as provided for several other industries, including pharmaceuticals
and inputs that go to make them. These have fallen on deaf years so far, and it remains to be seen whether this time will be any different.

If the decision to provide fiscal support finds favour, great care must be taken when selecting the projects that are to benefit. When a

Chemical Weekly July 22, 2025 127

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